INTERNATIONAL BUSINESS: Israel Raises Its Glass To Desalination; Water, Water Everywhere Just Waiting For Price to Drop

In an old Middle Eastern curse, enemies and miscreants are scornfully told to ''drink from the sea.'' But for decades now, the wealthy but arid nations of the Persian Gulf have been drinking ocean water, purifying it with the world's biggest desalination plants.

Now thirsty Israel is also turning to the sea, with the government taking bids for its first large desalination projects. To be built on the Mediterranean south of Tel Aviv, the plants promise to alleviate Israel's chronic water shortage and, officials hope, avert clashes with its Arab neighbors over the region's dwindling ground water supplies.

Unlike the costly steam-based systems used elsewhere in the Middle East, the Israeli method uses energy-efficient filtration devices that Israel has helped to perfect, but long could not afford on a large scale at home.

But continuing technological innovation has now pushed the price for desalted seawater down to $2 for a thousand gallons, compared with $6 a decade ago, with experts forecasting further reductions. Urban consumers in Israel already pay about $4 per thousand gallons.

Water levels in Israel's reservoirs and aquifers have dropped precipitously. The Sea of Galilee, the holding tank for most of Israel's fresh water, is receding to its lowest levels on record, and the government is exploring the emergency importation of tankerloads of Turkish water to avert a crisis.

''We need this water urgently,'' said David Waxman, the chief executive of IDE Technologies Ltd., a company in Ra'anana, Israel, that is leading one of three consortiums seeking to build and operate a 36- million-gallon-a-day desalination plant planned for the port city of Ashkelon. Within a few months, Israel's water company will invite proposals for a bigger plant up the coast in Ashdod, with a projected output of 47 million gallons a day.

Industry experts expect more Israeli projects, with desalination facilities integrated into coastal power plants that will be fueled by newly discovered offshore natural gas reserves. Extrapolating from current supply and consumption trends, experts say that a drought a decade from now could leave Israel facing a shortfall of at least 300 million gallons a day.

''There really is no water,'' Uri Saguey, the chairman of Mekorot, Israel's state water company, said Thursday in a public plea for desalination investment. ''Any entrepreneur who gets government approval for desalinating water should be blessed.''

Desalination projects can be completed quickly, says IDE, which has been building them elsewhere in the world for 30 years. This April, IDE began operating its latest plant, in Larnaca, Cyprus, just 14 months after breaking ground. ''Israel could use 10 of them,'' Mr. Waxman said.

The Israeli contracts, expected together to be worth perhaps $250 million, will be among the most hotly contested anywhere in the increasingly competitive desalination industry, experts say. Annual revenue from the water projects is expected to triple, to $100 billion, over the next two decades, with most of the growth coming from the new filtration systems that will be showcased in the Israeli plants.

Instead of heating and distilling the brine, which requires abundant surplus energy, these plants strain salt out of seawater with synthetic membranes in a process consuming half as much power.

World demand for these improved reverse-osmosis systems -- also used for purifying brackish and polluted water -- is now growing at 10 times the pace of thermal desalination, estimates Eric Jankel of Aqua Resources International, a consulting company in Evergreen, Colo. Israel, where universities have long been world leaders in desalination research, is expected to be a proving ground for further technological advances in the field, he said.

''The Ashkelon plant will be the largest pure seawater reverse osmosis plant in the world, '' Mr. Jankel said. ''That gives it a significance beyond the Middle East.''

Also competing for the Ashkelon contract is Ionics Inc. of Watertown, Mass., which says it has the most membrane-based desalination plants -- about 3,000 but many of them relatively small -- in operation worldwide. The third approved bidder is a consortium led by Cadagua, part of the Ferrovial Group of Spain, which has built desalination plants in Tunisia, Cyprus and Spain.

Elsewhere in the world, more than 30 large seawater desalination plants are now in the construction or planning stage. With desalination becoming increasingly efficient and affordable, it is beginning to look like an ideal growth industry: the raw material is abundant, and demand for the finished product is almost unquenchable.

The World Meteorological Organization says that by 2025 almost a billion people will face serious water shortages. And much of this population will be living on or near a coast, from the South China Sea to Southern California to here in the southern Mediterranean.

''There is huge competition now in the business, so prices are decreasing,'' said Jean-Marie Brun, a water systems engineer for Vivendi Environnement of France, the single biggest company in the field. ''And the technology, which is very good now, is getting better all the time.''

The largest membrane-based desalination plant now under construction is in Tampa, Fla., where the Poseidon Resources Corporation and the Covanta Energy Corporation will be producing 25 million gallons of water a day for about $1.75 per thousand gallons, the lowest rate in the world. But the estuarine waters of Tampa Bay are far less salty than the ocean, cutting filtration costs.

In Trinidad, Ionics is building what will be the biggest ocean-desalination plant in the Western Hemisphere, with an output of 29 million gallons a day at about $2.50 per thousand gallons. IDE's plant in Cyprus provides 16 million gallons of drinkable water a day for a similar price. But with improving technology and economies of scale, contractors for the Israeli projects are expected to keep the cost close to $2 per thousand gallons.

Cadagua and Ionics both have local Israeli partners. But IDE, with more than 300 plants operating on five continents, is the only Israeli company with a proven record abroad. Owned by two private Israeli industrial conglomerates, Israel Chemicals Ltd. and the Delek Group Ltd., IDE builds desalination devices for export in Ra'anana, north of Tel Aviv, and argues that it should be the beneficiary of a little home-team favoritism in the tender.

''I think the government should support local technology, local know-how and local R & D,'' Mr. Waxman said. ''They are getting paid back, because we are all Israelis, paying our taxes here.''

But IDE, forewarned that its favorite-son status will not guarantee success, is bidding in partnership with Vivendi, the current world heavyweight.

Vivendi, a unit of Vivendi Universal, the media and telecommunications giant, has been buying its way to global primacy in the water purification business, paying $6 billion two years ago for USFilter of Palm Desert, Calif., an innovator in membrane technologies. A year earlier, Vivendi absorbed the International Desalination Company, a distillation specialist that is known by its French acronym, Sidem, and is a desalination leader in the Persian Gulf.

The pioneer and still by far the biggest desalination market in the world is almost next door to Israel. Kuwait, which built its first plant in 1957, was the first country anywhere to rely on desalination for drinking water. By 1990 there were about 15,000 desalination plants in the Gulf states, more than in the rest of the world combined. Saudi Arabia alone expects to spend $50 billion on new plants in the next 20 years, the Saline Water Conversion Corporation there recently said.

Most of the new gulf projects will use heated water from power plants, a process that is an IDE specialty. But as an Israeli company, IDE is excluded from bidding in the region. ''Our inability to go to the gulf is our biggest disappointment,'' Mr. Waxman said.

Almost equally frustrating had been the lack of better business opportunities at home. The isolated Red Sea port of Eilat gets drinking water from an IDE plant, and there are smaller experimental operations scattered across the country. But despite Israel's recognized prowess as an innovator in the field, economics and politics kept it from embracing desalination as the solution to its own water problem.

In some circles of the Israeli right, desalination was opposed out of concern that a new fresh water supply would weaken Israel's strategic case for control of aquifers beneath the West Bank. On the left, some had argued that peace with Syria would let Israel buy surplus water from Lebanon. The last Israeli government proposed a coastal desalination plant, but as part of a peace pact with the Palestinians; the water was to be shared between Gaza and Israel, with foreign governments footing the bill.

Peace deals and donor subsidies appear less likely now. But desalination has an important booster in Prime Minister Ariel Sharon, who has long favored it as a tool to get water disputes off the regional diplomatic agenda. A year and a half ago, as the leader of the Israeli opposition, Mr. Sharon proposed building two plants on the Mediterranean for the Gaza Strip and Israel.

''This is one of the first things I am going to do after we establish quiet,'' Mr. Sharon vowed in an interview a few days before taking office in February.

Some experts still challenge the economic rationale for desalination in Israel. The debate parallels American energy policy arguments, with advocates of increased production battling analysts who say scarcity is best eased through conservation.

Israel, like many nations, pumps water to arid farming districts at steeply subsidized rates. Agricultural users, paying half as much as industrial customers, account for three-fifths of Israel's water consumption. Yet agriculture contributes just 2 percent of Israel's gross domestic product. Most of the water irrigating Israeli fields and orchards has been purified to drinking-water quality. Finance ministry economists say higher prices would reduce demand by eliminating some marginal farming operations and encouraging the recycling of waste water.

But pricing reform remains politically unpalatable, and the supply-siders are winning the debate.

''There are two factors here,'' said Mr. Saguey of Israel's water company. ''One is God, who brings whatever rain he does. In the last few years he's been a little disappointing. The other is whatever water sources we can develop ourselves.''